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Archive for October 23rd, 2008

ECB USD tender

Posted by WARREN MOSLER on 23rd October 2008

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Haven’t been able find the latest total on USD swap lines advances by the Fed.

But at the last ECB tender they set the rate above ‘market rates’ and didn’t get a lot of takers for that reason.

I suspected that would leave the market short USDs and USD LIBOR would trade up until the next tender when the size would again pick up as shorts scramble to cover.

Seems to be happening.

ECB USD tender

Time Euro (Euro change) Sterling (Sterling change) Dollar (Dollar change)
Overnight 3.55625 (-0.01125) 4.56250 (-0.01875) 1.20625 (+0.08750)
1 Week 3.92750 (+0.03000) 4.97500 (-0.04375) 2.19750 (+0.02875)
2 week 4.04250 (-0.00750) 5.42500 (-0.03750) 2.55375 (+0.03500)
1 month 4.58750 (-0.00875) 5.81125 (-0.03375) 3.25875 (-0.01625)
2 month 4.73125 (-0.01250) 5.93750 (-0.03500) 3.38625 (+0.00250)
3 month 4.91500 (-0.01000) 6.00500 (-0.03375) 3.53500 (-0.00625)
6 month 4.99313 (-0.01312) 6.12500 (-0.02250) 3.53000 (+0.04750)
1 year 5.05500 (-0.02625) 6.21875 (-0.03500) 3.50250 (+0.07875)
3 month LIBOR/OIS Spread (bps) 171.60000 (+8.500) 219.40000 (+0.100) 251.85000 (-0.275)


Posted in ECB | 3 Comments »

Re: Russia/OPEC

Posted by WARREN MOSLER on 23rd October 2008

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(email exchange)

Thanks! it’s all about price setting, as previously suspected.


>   On Thu, Oct 23, 2008 at 10:09 AM, Scott wrote:
>   Moving on, we note that Russia and OPEC held high level talks
>   yesterday in Moscow as President Dmitry Medvedev met with OPEC’s
>   Secretary-General, Abdallah Salem al-Badri. This is, to the best of our
>   knowledge, the first such “summit” meeting between Russia and OPEC.
>   The talks, apparently, were to discuss the volatile oil market, and it
>   appears that Moscow is pushing for wider and more open co-operation
>   with other world energy producers. Neither the Kremlin nor OPEC
>   released details of the meeting, but before the talks between he and
>   Mr. Medvedev began, Mr. al-Badri dispensed with the idea that he’d
>   come to Moscow to ask for an output reduction. Obviously we do not
>   believe that statement, nor should anyone else. It is in OPEC’s best
>   interest to get Russia, Norway, and any other large… or soon to be
>   large, such as Brazil… to curtail production. Further, the ‘summit’
>   followed an agreement between Russia, Qatar and Iran to consult with
>   one another on the natural gas market, to possibly pursue joint
>   projects and perhaps to create their own nat-gas cartel. Mischief is
>   afoot. We can just sense it.


Posted in Oil, Russia | 1 Comment »

Re: IMF rumor

Posted by WARREN MOSLER on 23rd October 2008

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>   On Thu, Oct 23, 2008 at 9:51 AM, Scott wrote:
>   And now a rumor that the IMF is putting together a $1 Trillion assistance
>   package for EM

Thanks, IMF USD lending is functionally the same as Fed lending via swap lines.

This is on track to go the full route of a classic emerging market debt crisis.


Posted in Email | 2 Comments »

Canada News | Ottawa to guarantee inter-bank lending

Posted by WARREN MOSLER on 23rd October 2008

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Excellent move!

Someone finally understands that the CB demanding collateral from its own regulated banks is redundant for ‘local currency’ lending to member banks.

The Fed should have done this long ago and saved a year of financial turmoil, as I’ve been proposing for a long time.

This means bank failures will be due to solvency, and not liquidity.

Ottawa to guarantee inter-bank lending

By Kevin Doherty

OTTAWA — Canada’s government will guarantee the lending the country’s banks do with other financial institutions.

Finance Minister Jim Flaherty said Thursday the government is establishing the Canadian Lenders Assurance Facility on a temporary basis to backstop wholesale lending.

Mr. Flaherty said he is establishing the lending facility to ensure Canadian banks aren’t left at a competitive disadvantage. More than a dozen countries have pledged hundreds of billions of dollars to guarantee interbank lending.

Banks will access the insurance from the facility on commercial terms. Mr. Flaherty said there will be no cost to taxpayers.

“This is a proactive step,” Mr. Flaherty told reporters. “There is this concern that our institutions could be disadvantaged competitively.”


Posted in Articles | 1 Comment »


Posted by WARREN MOSLER on 23rd October 2008

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He’s not quite there. Yes, they need a ‘fiscal authority’ but he doesn’t see it’s function as providing the deficit spending necessary to sustain output and growth, though his mention of ‘currency printing’ could be stretched to suggest that. Instead, the focus is on collecting taxes to fund itself:

Agree. Eastern Europe is a huge problem and again much depends on what the Fed does because the ECB can only underwrite this stuff to the extent that the Fed will continue to offer the ECB unlimited swap facilities. Sarkozy gets this. He now recognizes the Achilles Heel at the heart of the EMU:

Speaking to the European Parliament on Tuesday, French President Nicolas Sarkozy said that an “economic government” partnering with the European Central Bank (ECB) was necessary for the continuation of the 15-nation eurozone — the collection of nations within the European Union that uses the euro as currency.

The financial and banking imbroglio consuming Europe has emphasized how the EU and specifically the eurozone — although impressive and supranational — are nonetheless unprepared for, and incapable of handling, wide-ranging economic crises. The European Union is not a superstate, despite the accusations of its detractors or the wishful thinking of its supporters. It does not have a unified decision-making authority on most policy issues except for those concerning the functioning of its common market, and those are primarily non-political.

The establishment of the eurozone is an impressive feat in its own right. It binds together 15 economies within the 27-member union with a common currency and a common central bank. However, the ECB and the eurozone in general lack a number of competencies that, if ever implemented, would have impinged on national sovereignty but would have also made monetary and economic sense. These include taxation, currency “printing”, decision-making on where to funnel funds in times of crises and European-wide bank regulation.

In times of plenty — which the eurozone has experienced for the most part since its inception — it may seem sufficient that the authority of the ECB is strictly limited to keeping inflation under 2 percent (a role inherited from its direct ancestor the German Deutsche Bundesbank). However, the current crisis illustrates the deficiency of this system. Without supranational taxation, the eurozone does not have the ability to make liquidity infusions into the system directly — it simply does not have any real cash of its own. In fact, Europeans have had to depend on the U.S. Federal Reserve for capital through unlimited dollar funds made available Oct. 13. A credit-starved Europe had to draw $250 billion — with hundreds of billions more potentially outstanding — on the first day the Fed announced that swaps would be unlimited.

Even with a taxation system that would supply the ECB with its own pool of funds, someone would still have to make a political decision regarding receivership of those funds.

Sarkozy may have tried to allay these fears by using the word “economic” — highlighting that the authority would not extend beyond the policy realm currently being rocked by the financial crisis. This is a valiant marketing effort for sure, but in reality one cannot separate the political and the economic “government”, especially if the eurozone receives authority over taxation or the ECB becomes responsible for deciding which banks get bailed out or which industries receive loans. Were the Europeans willing to go this far in giving up national sovereignty, they would have done it already.


Posted in Articles, EU | 2 Comments »


Posted by WARREN MOSLER on 23rd October 2008

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ECB on inflation- while interest rate cuts are likely (and in my honest opinion, won’t help anything), what they consider low unemployment and wage gains still a factor and making headlines and have been causing some footdragging.

Trichet May Need to Prove ECB’s Inflation Credentials (Update1)

By Ben Sills

“Whether that means inflation is suddenly going to fall enough is highly doubtful,” said Broux. “Unemployment is the lowest in a generation.”

While oil prices have halved in the past three months and inflation slowed to 3.6 percent in September, workers are demanding compensation for higher costs.

Germany’s IG Metall labor union is seeking an 8 percent pay increase, the largest in 16 years, and workers at Ireland’s Electricity Supply Board last month demanded 11.3 percent.

Germany preparing some kind of fiscal package, but still no details. The government and bond issuance is already set to gap up, and this will add to the systemic risk:

Germany is preparing a package of economic measures to support consumption and help selected industries as growth in Europe’s largest economy rapidly loses steam, government officials said on Wednesday.

The fiscal package is considered more than just an economic response to the financial crisis; it is also a political move aimed at making Berlin’s €500bn ($644bn, £395bn) rescue package for its banks more palatable to voters, a year ahead of a general election at risk of becoming overshadowed by the abrupt slowdown.

The government reduced its 2009 gross domestic product growth forecast last week from 1.2 to 0.2 per cent and several economists fear the economy could even shrink next year.

Meaning higher deficits.

Although details of what will be included are yet to be announced, the move confirms that Berlin is no longer aiming to balance the federal budget by 2011, once a central goal of Angela Merkel, the chancellor.

Government officials said on Wednesday Ms Merkel had appointed Jörg Asmussen, deputy finance minister, and Walther Otremba, deputy economics minister, to prepare a list of measures to support consumers and business that could be adopted as early as next week.

The growth-supporting efforts are thought to be tax incentives to encourage consumption of German products, such as new cleaner cars or energy-efficient heating systems for homes.

“We need measures that have leverage,” said Joachim Poss, a Social Democratic MP and public finance expert, adding that these should be limited in the time they were available.

One option would be to increase the budget of a 2006 programme of tax incentives to encourage consumers to insulate their homes.

The economics ministry is also keen for KfW Group, the public sector development bank, to provide 100 per cent loans to small and mid-sized companies, as they struggle to secure credit in the financial turbulence.

More controversial is the issue of tax cuts, largely because of Ms Merkel’s concerns, shared by Peer Steinbrück, the finance minister, that these could fail to increase consumption at a time the downturn is beginning toaffect tax revenues.

However, an economics ministry official said Mr Asmussen and Mr Otremba had not abandoned the notion of income tax cuts.

Alternatively, the government could decide to bring forward by one year a decision to allow taxpayers to deduct the cost of their health insurance from their tax bills, the official said.

The decision, forced upon the government by a court ruling, was due to apply from 2010 and would cost the federal and regional governments €9bn a year in total.

In contrast, China, with its own fiscal authority and non-convertible currency, has no solvency issue and can get the job done if they aren’t shy about it:

China says domestic demand boost can help economy

BEIJING, Oct 23 (Reuters) – China can overcome the tightening in economic conditions by boosting domestic demand, Chinese Premier Wen Jiabao said on Thursday.

“We can overcome the current difficulties through stimulating domestic demand,” said Wen after meeting German Chancellor Angela Merkel.

Merkel added: “We want to use the chances (we have) through an intense cooperation.”


Posted in China, ECB, EU | 1 Comment »

2008-10-23 USER

Posted by WARREN MOSLER on 23rd October 2008

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Initial Jobless Claims (Oct 18)

Survey 468K
Actual 478K
Prior 461K
Revised 463K

Hurricane added 12,000. Based on other economic stats and surveys this could get a lot worse.


Continuing Claims (Oct 11)

Survey 3715K
Actual 3720K
Prior 3711K
Revised 3726K

A slight pullback. This is getting into recession levels.


Jobless Claims ALLX (Oct 18)


House Price Index MoM (Aug)

Survey -0.5%
Actual -0.6%
Prior -0.6%
Revised -0.8%

A little worse than expected and rates of decline may have leveled off.


House Price Index YoY (Aug)

Survey n/a
Actual -5.9%
Prior -5.5%
Revised n/a

Still falling but at perhaps moderating rates.


House Price Index ALLX (Aug)


Posted in Daily | No Comments »